Every loan note ends the same way: on a fixed date, the money has to be paid back. It is surprising how many issuers leave the question of how until the final year.
Investors do not. The repayment source is often the first thing they ask about, and the answer shapes how they view everything else.
The four realistic sources
There are only a handful of ways a note actually gets repaid:
Cash flow. The business generates enough surplus over the term to pay back the principal. This is the cleanest answer and the most credible, if the numbers support it.
Asset sale. A specific asset, often a property or a completed development, is sold and the proceeds repay the note. Investors will want to see the asset, its value and a realistic timeline for sale.
Refinancing. The note is repaid by raising new money, from a bank, a larger bond or a fresh loan note. This is common, but it depends on market conditions at the time, so investors will want to know why refinancing will be available then.
A liquidity event. A sale of the business or a listing provides the funds. This is the least certain source and the hardest to rely on alone.
Why it matters when you raise
A clear repayment plan makes a note easier to sell. It answers the investor’s central question: how do I get my money back?
It also protects you. A business that has mapped its repayment from the start is less likely to reach maturity with no plan and limited options.
Building it into the plan
- Name the source in the information memorandum, with the evidence behind it.
- Match the term to the source. If repayment depends on a development completing, the maturity must fall comfortably after completion, not on the same day.
- Have a fallback. If the primary route fails, what is the second? Investors respect an issuer who has thought about that.
- Revisit it every year. Update investors on progress toward repayment. It builds confidence and gives early warning if the plan needs to change.
The maturity date is fixed from the day you sign. Plan backwards from it.
Mark Johnson is the Founder of BDM Capital, which introduces capital raising opportunities across bonds, loan notes, IPOs and SEIS/EIS. To discuss a raise, get in touch.
Frequently asked questions
Because the repayment date arrives whatever the business has done, and the sources of repayment, cash, refinancing or a sale, each take time to arrange. A plan made at issue can be tested and adjusted; one made in the final months cannot.
Accumulated cash from trading, a new debt facility that refinances the note, an equity raise, the sale of assets or the business, or conversion into shares where the note allows it.
Tell the holders early, present a credible alternative such as an extension, partial repayment or refinancing, and seek their consent before the default occurs. Silence until the due date is the worst option.
BDM Capital is not authorised or regulated by the Financial Conduct Authority. This article is general information, not financial, tax or legal advice, and does not constitute an offer or invitation to invest. Capital is at risk and you may get back less than you invest. Written for founders and directors of businesses considering a raise. Take independent professional advice before making any investment decision.
